The Swiss franc traded little changed against the euro on Friday, holding on to strong gains from the previous session, when a return in risk aversion forced investors to cut back on carry trades
Markets' attention now turns to the KOF leading growth indicator for July, due later in the session, which is expected to confirm the bright economic outlook for Switzerland and the leeway for further interest rate increases. The franc was nearly flat on the day against the euro at 1.6532 per euro, after recovering in the previous session from a 9-year low at 1.6687 hit on Wednesday.
The franc was also largely unchanged against the dollar at 1.2042 per dollar.
The franc has been under pressure for months as investors borrow the franc to buy higher-yielding currencies such as the euro in carry trades, using the difference in interest rates of 2.5 percent in Switzerland and 4.0 percent in the euro zone.
But the franc jumped on Thursday after a sell-off in equities triggered by fears that problems in the US subprime mortgage market may lead to a severe credit crunch. "The franc appreciated due to the turbulences," said Clariden Leu analyst Sandro Baechli. "This might continue in the short term." But the issue of franc weakness was not off the table yet. "As soon as markets calm down, the franc is likely to fall again, especially against the euro," Baechli said.
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